ADMS 4255 Study Guide - Final Guide: Regis Mckenna, Decision Support System, Customer Experience

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tauperat286

27 Nov 2017

School

York University

Department

Administrative Studies

Course

ADMS 4255

Professor

Ian Gordon

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Document Summary

5 last, case related, 4 marks each, 25% of total marks ( add as much as info you can) Best buy case: what is the main question to be addressed in the case. Increase sale, grow market share, and improve customer service. There are number of potential problems may company faced to pursue the strategy. which one is not among the problem: overhead and administrative fees have increased by approximately by 2% and. 2. 5%: the margin has only increased by 2. 88%, the new strategy is expensive and not generating required results, price war with walmart and dell inc, the fear of tarnishing and damaging goodwill and brand image. Rbccase: which is not the consideration among the company. Issue: rbc had a lot of crm data but they did not know how to use: value analyzer, deployed crm at all points of context, reorganization of the bank.

Related Questions

After reading the case that is below, how can a foreign company entering China ensure that it tackles the most important little things that end up being huge barriers to success as we approach the year 2020 when China is expected to have significantly increased purchasing power among its middle class? Write your opinion, as a manager, on how to face cultural issues like those described in the case, when entering foreign markets.

The People's Republic of China opened up to foreign investments in the late 1970s. Since that time, numerous companies have tried to establish operations and sell their products to customers in China. Many more companies will try in the years to come China is expected to have some 190 million people in the middle- and upper-income categories by 2020. This is an increase from only about 17 million people in these income brackets as recently as in 2010. China's purchasing power for virtually all products and services has strong potential, and foreign companies will seek these market opportunities. What have we learned culturally that can help Western-based companies in China's marketplace?

Some background on China can serve as a starting point for a better understanding of the culture in China and what some well-known companies such as Best Buy and eBay have done to target the Chinese marketplace. The motivation for many foreign companies to enter China beyond those that have been there for a few decades for reasons of low-cost production was the triple growth of the Chinese economy that was seen from 2000 to 2010. China overtook Japan to become the second-largest economy in the world behind only the United States, and its large population makes for an enormous target market. Investment from foreign companies was the largest driver of China's growth in the decade from 2000 to 2010. However, many companies also increased their exports to China. The United States, for example, saw its companies increase exports to China by 542 percent from 2000 to 2011 (from about $16.2 billion to $103.9 billion), while total exports to the rest of the world increased by only 80 percent in the same time period.

Interestingly, while foreign investments grew, domestic consumption as a share of the Chinese economy declined from 46 percent in 2000 to 33 percent in 2010. This consumption declineâcoupled with slower growth globally and, ultimately, the worldwide economic downturn that started in 2008âraised questions about China's momentum. Right now, around 85 percent of mainstream Chinese consumers are living in the top 100 wealthiest cities. By the year 2020, these advanced and developing cities will have relatively few customers who are lower than the middle- and upper-income brackets by Chinese standards. The expectation is that these consumers will be able to afford a range of products and services, such as flat-screen televisions and overseas travel, making the Chinese customer much more of a target for a wide variety of consumption. This begs the question, can the unprecedented Chinese growth really continue, and would it come from increased consumption?

The resounding answer is yes according to research conducted by McKinsey & Company. McKinsey found that barring another major economic shock similar to what we saw in 2008, China's gross domestic product (GDP) will continue to grow, albeit not at the historic levels seen between 2000 and 2010 when it grew about 10.4 percent annually. The growth from 2010 to 2020 is expected to be about 7.9 percent per year, which is still far above the expected growth for the United States (2.8 percent annually), Japan (1.2 percent annually), and Germany (1.7 percent annually) the three countries among the top four worldwide economies along with China. And, the key is that consumption will now be the driving force behind the growth instead of foreign investment. The consumption forecast opens up opportunities for foreign companies to engage with Chinese consumers who are expected to have more purchasing power and discretionary spending. But culturally translating market success from one country or even a large number of countries to the Chinese marketplace is not necessarily as straightforward as it may seem. Often, a combination of naivety, arrogance, and cultural misunderstanding has led many well-known companies to fail in China. Lack of an understanding of issues such as local demands, buying habits, consumption values, and Chinese customers' personal beliefs led to struggles for companies that had been very successful elsewhere in the world. Let's take a brief look at Best Buy and eBay as two examples.

Best Buy, the mega-store mainly focused on consumer electronics, was founded in 1966 as an audio specialty store. Best Buy entered China in 2006 by acquiring a majority interest in China's fourth-largest appliance retailer, Jiangsu Five Star Appliance, for $180 million. But culture shock hit Best Buy, best described by Shaun Rein, the founder of China Market Research Group. He pointed to a few reasons for this culture shock and lack of success. First, the Chinese will not pay for Best Buy's overly expensive products unless they are a brand like Apple. Second, there is too much piracy in the Chinese market, and this reduces the demand for electronics products at competitive market prices. Third, like many Europeans, the Chinese do not want to shop at huge mega-stores. So, these three seemingly easy-to-understand cultural issues created difficulties for Best Buy. Solving these issues, Best Buy believed that it would have to develop and implement a different business model for the Chinese market than it has used, for example, in the United States. Now, how far should a company go outside its normal business model to adhere to the cultural values and beliefs of a new market? Strategically moving forward, Best Buy opted to close all of its Best Buy branded stores in China and focus on its wholly-owned local Jiangsu Five Star chain of stores. But will this new strategic business model be successful with the new makeup of customers in China expected by 2020?

eBay, the popular e-business site focused on consumer-to-consumer purchases, was founded in 1995. The company was one of the true success stories that lived through the dot-com bubble in the 1990s. It is now a multi-billion-dollar business with operations in more than 30 countries. But China's unique culture created problems for eBay in that market. Contrary to the widespread cultural issues that faced Best Buy, one company in particular (TaoBao) and one feature more specifically (built-in instant messaging) shaped a lot of the problems that eBay ran into in China. Some 200 million shoppers are using TaoBao to buy products, and the company accounts for almost 80 percent of online transaction value in China. Uniquely, TaoBao's built-in instant messaging system has been cited as the main reason for its edge over eBay in China. Basically, customers wanted to be able to identify a seller's online status and communicate with them directly and easily function not seamlessly incorporated into eBay's China system. Clearly, built-in instant text messaging is a solvable obstacle in doing business in China. It sounds easy now when we know about it, but may not always be the case when we take into account all the little things that are important in a market.

brownox314

Fraud case Studies Case 2 - Pleasant Pasta

Overview

Pleasant Pasta (the Company) was the largest dry pasta producer inNorth America. As a manufacturer and marketer of pasta
products, Pleasant competed for market share with many othercompanies in a low-growth industry. Despite the competitive
nature and maturity of the pasta market, Pleasantâs management teamwas determined to become a high-growth company.
After successfully executing an initial public offering (IPO),Pleasantâs management team developed a short-term strategywhich
would allow the Company to achieve the rapid growth promised to itsnew investors. Specifically, Pleasant decided to focus
on marketing its products under generic brand names owned byseveral leading grocery chains. While the strategy did allow
the Company to initially achieve the sales and earnings growthmanagement desired, it became clear that Pleasant could not
continue to rapidly grow its business solely through genericchannels of distribution. Aware of this, management devised along
term performance plan that outlined aggressive top and bottom linenumbers for fiscal years 2002, 2003, and 2004. The strategic
initiative referred to as âExtraordinary Performanceâ unambiguouslylaid out managementâs primary objective for the next three
years: grow revenue, grow earnings, and grow earnings per share(EPS) at all costs.

Achieve the âExtraordinaryâ targets
Shortly after the start of fiscal year 2002, it became obvious thatPleasant Pasta was having difficulty meeting the aggressive
âExtraordinaryâ targets set by management. Due primarily to theincreasing popularity of low-carbohydrate diets like theAtkins
diet, consumer demand for pasta had dropped, rather dramatically.Plummeting demand coupled with a historically low industry
growth rate created a difficult environment for the Company tooperate in. Dissatisfied with performance, the CEO assembled
a task force to focus on âclosing the gapâ between theâExtraordinaryâ targets and actual results. In these meetings,the
CEO boldly stressed that their task would only be accomplished whenreported results met analystsâ expectations. As a direct
consequence, task force members were committed to the fullexecution of strategic profit initiatives to enable theCompany
to meet its âExtraordinaryâ targets. Without a doubt, the tone atthe top set by the CEO in these meetings had an impact on
task force members because most considered the use of improperaccounting practices to be part of the plan to achieve the
âExtraordinaryâ initiatives.

Close the Gap
To start, the task force focused on the âtrade promotionâ expenseaccount to help close the gap between actual and targeted
profit. For example, the Company had recently acquired severalother large pasta brands. A routine aspect of promoting such
brands involved product discounts, promotions, advertising, andvolume rebates that together made up âtrade promotionâ
expenses. Based on a detailed financial analysis, it was clear thatthese types of expenses were consistently greater than the
amount âaccruedâ for in the budget, which reduced actual profits.To remedy this, the task force decided that Pleasant Pastawas
justified in including a portion of promotional expenses into thebrand acquisition costs, thereby capitalizing a portion of thecosts
that had previously been expensed. These unsupported journalentries reduced the trade promotion expenses by greater than
50%, boosting the Companyâs actual profits.
The second phase of the task forceâs strategic profit initiativefocused on reducing manufacturing expenses. Since its IPO,the
Company had grown at a tremendous rate and taken on a number ofsignificant capital projects to expand production lines.
Under GAAP, the Company should have separated out internal laborcosts from ordinary operating expenses, capitalizing only the
labor related to the capital projects. However, the task forcedetermined that it would be best to reduce operating expensesby
capitalizing all budgeted internal labor and manufacturingoverruns. To further contain rising expenses, the task forcerefused to
write off âobsoleteâ assets, which had the effect of reducingreported depreciation expense.
As the pasta market continued to shrink, the task force realizedthat its efforts to suppress the Companyâs expenses weresimply
not enough. Determined to meet the CEOâs objectives, the task forcebegan to concentrate on ways to increase Pastaâs reported
sales revenue. Reduced demand for pasta had driven many customerorders well below the contractually agreed upon minimum
purchase volume. As such, numerous customers were contractuallyrequired to pay the Company a higher price on purchases Â© 2014KPMGLLP, a Delaware limited liability partnership and the U.S. memberfirm of the KPMG network of
independent member firms affiliated with KPMG InternationalCooperative (âKPMG Internationalâ), a Swiss entity. All
rights reserved. Printed in the U.S.A. The KPMG name, logo andâcutting through complexityâ are registered trademarks
or trademarks of KPMG International. NDPPS 309511 Case 2 PleasantPasta until contractual volume numbers were met. Under GAAP, thepremiums paid on each order should have been recognized as
revenue immediately. However, at the direction of the task force,the Company not only recognized the revenue associated with
the actual price increases, but also their projected priceincreases in order to boost reported earnings. Further, the taskforce
authorized significant promotional discounts that resulted inseveral material sales in the final days of each period. Unwillingto fall
short of the âExtraordinaryâ targets, the task force evenimproperly recognized revenue before shipping the product in manyend
of year transactions.
Overall, the task forceâs efforts to improperly reduce costs andinflate revenues resulted in an overstatement of EPS by 23%in
2002, 41% in 2003, and 59% in 2004. Additionally, over thefraudulent years, Pleasant Pastaâs pretax income wasimproperly
inflated by greater than 66%, which helped to fuel a significantstock price increase for the company.

Fraud Discovery
In 2008, Pleasant Pasta publicly admitted that the Companyâs 2002,2003, and 2004 consolidated financial statements were
materially misstated due to fraud. In its admission and subsequentrestatement, the Company attributed the fraud to an
inadequate system of internal controls as well as managementâsfailure to maintain an appropriate tone at the top. Thediscovery
was made through a combination of an internal whistle-blower,significant management turnover, and ultimately an SEC
investigation.

i would like a summry for the case .

burgundytermite294

QUESTION: What did the analyst from the Treasury Staff mean by his comment about inflation? Do you agree with it?

VICTORIA CHEMICALS PLC (A): THE MERSEYSIDE PROJECT

Late one afternoon in January 2008, Frank Greystock told Lucy Morris, âNo one seems satisfied with the analysis so far, but the suggested changes could kill the project. If sold projects like this canât swim past the corporate piranhas, the company will never modernize.â

Morris was plant manager of Victoria Chemicals? Merseyside Works in Liverpool, England. Her controller, Frank Greystock, was discussing a capital project that she wanted to propose to senior management. The project consisted of a GBP9 million expenditure to renovate and rationalize the polypropylene production line at the Merseyside Plant in order to make up for deferred maintenance and exploit opportunities to achieve increased production efficiency.

Victoria Chemicals was under pressure from investors to improve its financial performance because of both the worldwide economic slowdown and the accumulation of the firmâs common shares by a well-known

corporate raider, Sir David Benjamin. Earnings per share had fallen to 180 at the end of 2007 from around 250 at the end of 2006. Morris thus believed that the time was ripe to obtain funding from corporate headquarters for a modernization program for the Merseyside Works at least she had believed so until Greystock presented her with several questions that had only recently surfaced.

VICTORIA CHEMICALS AND POLYPROPYLENE

Victoria Chemicals, a major competitor in the worldwide chemicals industry, was a leading producer of polypropylene, a polymer used in an extremely wide variety of products (ranging from medical products to packaging film, carpet fibers and automobile components) and known for its strength and malleability. Polypropylene was essentially

priced as a commodity.

The production of polypropylene pellets at Merseyside began with propylene, a refined gas received in tank cars. Propylene was purchased from four refineries in England that produced it in the course of refining crude oil into gasoline. In the first stage of the production process, polymerization, the propylene gas was combined with the diluent (or solvent) in a large pressure tank and was then concentrated in a centrifuge.

The second stage of the production process compounded the basic polypropylene with stabilizers, modifiers, fillers, and pigments to achieve the desired attributes for a particular customer. The finished plastic was extruded into pellets for shipment to the customer.

The Merseyside production process was old, semi continuous at best and, therefore higher in labor content than competitorsâ newer plants. The Merseyside plant was constructed in 1967.

Victoria Chemicals produced polypropylene at Merseyside and in Rotterdam, Holland. The two plants were of identical scale, age, and design. The managers of both plants reported to James Fawn, executive vice president and manager of the Intermediate Chemicals Group (ICG) of Victoria Chemicals. The company positioned itself as a supplier to customers in Europe and the Middle East. The strategic-analysis staff estimated that, in addition to numerous small producers, seven major competitors manufactured polypropylene in Victoria Chemicals? Market region. Their plants operated at various cost levels. Exhibit 1 presents a comparison of plant sizes and indexed costs.

THE PROPOSED CAPITAL PROGRAM

Morris had assumed responsibility for the Merseyside Works only 12 months previously, following a rapid rise from an entry position of shift engineer nine years before. When she assumed responsibility, she undertook a detailed review of the operations and discovered significant opportunities for improvement in polypropylene production. Some of these opportunities stemmed from the deferral of maintenance over the preceding five years. In an effort to enhance the operating results of the Works, the previous manager had limited capital expenditures to only the most essential. Now, what had been routine and deferrable was becoming essential. Other opportunities stemmed from correcting the antiquated plant design in ways that would save energy and improve the process flow: (1) relocating and modernizing tank-car unloading areas, which would enable the process flow to be streamlined; (2) refurbishing the polymerization tank to achieve

higher pressures and thus greater throughput; and (3) renovating the compounding plant to increase extrusion throughput and obtain energy savings.

Morris proposed the expenditure of GBP12 million on this program. The entire polymerization line would need to be shut down for 45 days, however, and because the Rotterdam plant was operating near capacity, Merseysideâs customers would buy from competitors. Greystock believed the loss of customers would not be permanent. The benefits would be a

lower energy requirement as well as a 7% greater manufacturing throughput. In addition, the project was projected to improve gross margin (before depreciation and energy savings) from 11.5% to 12.5%. The engineering group at Merseyside was highly confident that the efficiencies would be realized.

Merseyside currently produced 250,000 metric tons of polypropylene pellets a year. Currently, the price of polypropylene averaged GBP675 per ton for Victoria Chemicals? product mix. The tax rate required in capital-expenditure analyses was 30%. Greystock discovered that any plant facilities to be replaced had been completely depreciated. New assets could be depreciated on an accelerated basis over 15 years, the expected life of the assets. The increased throughput would necessitate a one-time increase of work-in-process inventory equal in value to 3.0% to cost of goods. Greystock included in the first year of his forecast preliminary engineering costsâ of GBP500,000, which had been spent over the preceding nine months of efficiency and design studies of the renovation. Finally, the corporate manual stipulated that overhead costs be reflected in project analyses at the rate of 3.5% times the book value of assets acquired in the project, per year.

Greystock had produced the discounted-cash-flow summary given in Exhibit 2. It suggested that the capital program would easily hurdle Victoria Chemicals? required return of 10% of engineering projects.

CONCERNS OF THE TRANSPORT DIVISION

Victoria Chemicals owned the tank cars with which Merseyside received propylene gas from four petroleum refineries in England. The Transport Division, a cost center, oversaw the movement of all raw,

intermediate, and finished materials throughout the company and was responsible for managing the tank cars. Because of the projectâs increased throughput, Transport would have to increase its allocation

of tank cars to Merseyside.

Currently, the Transport Division could make this allocation out of excess capacity, although doing so would accelerate from 2012 to 2010 the need to purchase new rolling stock to support anticipated growth of the firm in other areas. The purchase would cost GBP2 million. The rolling stock would have a depreciable life of 10 years, but with proper maintenance, the cars could operate much longer. The rolling stock could not be used outside of Britain because of differences in track gauge.

A memorandum from the controller of the Transport Division suggested that the cost of these tank cars should be included in the initial outlay Merseysideâs capital program. But Greystock disagreed. He told Morris

The Transport Division isnât paying one pence of actual cash because of what weâre doing at Merseyside. In fact, weâre doing the company a favor in using its excess capacity. Even if an allocation has to be

made somewhere, it should go on the Transport Divisionâs books. The way weâve always evaluated projects in this company has been with the philosophy of âevery tub on its own bottomâ ---every division has to fend for itself. The Transport Division isnât part of our own Intermediate Chemicals Group, so they should carry the allocation of rolling stock.

Accordingly, Greystock had not reflected any charge for the use of excess rolling stock in his preliminary DCF analysis, given in Exhibit 2.

The Transport Division and Intermediate Chemicals Group reported to separate executive vice presidents, who reported to the chairman and chief executive officer of the company. The executive VPs received an annual incentive bonus pegged to the performance of their division

CONCERNS OF THE ICG SALES AND MARKETING DEPARTMENT

Greystockâs analysis had let to questions from the director of Sales. In a recent meeting, the director told Greystock.

Your analysis assumes that we can sell the added output and thus obtain the full efficiencies from the project, but as you know, the market for polypropylene is extremely competitive. Right now, the

industry is in a downturn and it looks like an oversupply is in the works. This means that we will probably have to shift capacity away from Rotterdam toward Merseyside in order to move the added volume. Is this really a gain for Victoria Chemicals? Why spend money just so one plant can cannibalize another?

The vice president of Marketing was less skeptical. He said that with lower costs at Merseyside, Victoria Chemicals might be able to take business from the plants of competitors such as Saone-Poulet or

Vaysol. In the current severe recession, competitors would fight hard to keep customers, but sooner or later, the market would revive, and it would be reasonable to assume that any lost business volume would

return at that time.

Greystock had listened to both the director and vice president and chose to reflect no charge for the loss of business at Rotterdam in hi preliminary analysis of the Merseyside project. He told Morris.

Cannibalization really isnât a cash flow; there is no check written in this instance. Anyway, if the company starts burdening its cost-reduction projects with fictitious charges like this, weâll never maintain our cost competitiveness. A cannibalization charge is rubbish!

CONCERNS OF THE ASSISTANT PLANT MANAGER

Griffin Tewitt, the assistant plant manager and direct subordinate of Morris, proposed an unusual modification to Greystockâs analysis during a late-afternoon meeting with Greystock and Morris. Over the past few months, Tewitt had been absorbed with the development of a proposal to modernize a separate and independent part of the Merseyside Works, the production line for ethylene-propylene-copolymer rubber (EPC). This product, a variety of synthetic rubber, had been pioneered by Victoria Chemicals in the early 1960s and was sold in bulk to European tire manufacturers. Despite hopes that this oxidation-resistant rubber would dominate the market in synthetics, in fact, EPC remained a relatively small product in the European chemical industry, Victoria, the largest supplier of EPC, produced the entire volume at Merseyside, EPC had been only marginally profitable to Victoria because of entry by competitors and the development of competing synthetic-rubber compounds over the past five years.

Tewitt had proposed a renovation of the EPC production line for a cost of GBP1 million. The renovation would give Victoria the lowest EPC cost base in the world and improve cash flows by GBP25,000 ad infinitum. Even so, at current prices and volumes, the net present value (NPV) of this project was --GBP750,000. Tewitt and the EPC product manager had argued strenuously to the executive committee of the company that the negative NPV ignored strategic advantages from the project and increases in volume and prices when the recession ended. Nevertheless, the executive committee had rejected the project, mainly on economic grounds.

In a hushed voice, Tewitt said to Morris and Greystock.

Why donât you include the EPC project as part of the polypropylene line renovations? The positive NPV of the poly renovations can easily sustain the negative NPV of the EPC project. This is an extremely

important project to the company, a point that senior management doesnât seem to get. If we invest now, weâll be ready to exploit the market when the recession ends. If we donât invest now, you can

expect that we will have to exit the business altogether in three years. Do you look forward to more layoffs? Do you want to manage a shrinking plant? Recall that our annual bonuses are pegged to the size of this operation. Also remember that, in the last 20 years, no one from corporate has monitored renovation projects once the investment decision was made.

CONCERNS OF THE TREASURY STAFF

After a meeting on a different matter, Frank Greystock described his dilemmas to Andrew Gowan, who worked as an analyst on Victoria Chemicalsâ Treasury staff. Gowan scanned Greystockâs analysis, and

pointed out that Cash flows and discount rate need to be consistent in their assumptions about inflation. The 10% hurdle rate youâre using is a nominal target of return. The Treasury staff thinks this impounds a long-term inflation expectation of 3% per year. Thus, Victoria Chemicals? real (i.e., zero-inflation) target rate of return is 7%.

The conversation was interrupted before Greystock could gain a full understanding of Gowanâs comment. For the time being, Greystock decided to continue to use a discount rate of 10%, because it was the figure promoted in the latest edition of Victoria Chemicalsâ capital-budgeting manual.

EVALUATING CAPITAL-EXPENDITURE PROPOSALS AT VICTORIA CHEMICALS

In submitting a project for senior-management approval, the project-initiators had to identify it as belonging to one of four possible categories: (1) new product or market, (2) product or market extension, (3) engineering efficiency, or (4) safety or environment. The first three categories of proposals were subject to a system of four performance âhurdlesâ, of which at least three had to be met for the proposal to be considered. The Merseyside project would be in the engineering efficiency category.

1. Impact on earnings per share: For engineering-efficiency projects, the contribution to net income from contemplated projects had to be positive. This criterion was calculated as the average annual EPS contribution of the project over its entire economic life, using the number of outstanding shares at the most recent fiscal year-end as the basis for the calculation. (At FYE 2000, Victoria Chemicals had 92,891, 240 shares outstanding.)

2. Payback: This criterion was defined as the number of years necessary for free cash flow of the project to amortize the initial project outlay completely. For engineering-efficiency projects, the maximum payback period was six years.

3. Discounted cash flow: DCF was defined as the present value of future cash flows of the project (at the hurdle rate of 10% for engineering-efficiency proposals), less the initial investment outlay. This net present value of free cash flows had to be positive.

4. Internal rate of return: IRR was defined as being that discount rate at which the present value of future free cash flows just equaled the initial outlay---in other words, the rate at which the NPV was 0. The IRR of engineering-efficiency projects had to be greater than 10%.

CONCLUSION

Morris wanted to review Greystockâs analysis in detail and settle the questions surrounding the tank cars and potential loss of business volume at Rotterdam. As Greystockâs analysis now stood, the Merseyside project met all four investment criteria:

1. Average annual addition to EPS = GBP0.022

2. Payback period = 3.8 years

3. Net present value = GBP10.6 million

4. Internal rate of return = 24.3%

Morris was concerned that further tinkering might seriously weaken the attractiveness of the project.

Exhibit 1

VICTORIA CHEMICALS PLC (A): THE MERSEYSIDE PROJECT

Comparative Information on the Seven Largest Polypropylene Plants in Europe

	Plant Location	Year Plant Built	Plant Annual Output (in metric tons)	Production Cost per Ton (indexed to low-cost producer)
CBTG A.G	SaarbrÃ¼n	1981	350,000	1.00
Victoria Chemicals	Liverpool	1967	250,000	1.09
Victoria Chemicals	Rotterdam	1967	250,000	1.09
Hosche A.G.	Hamburg	1977	300,000	1.02
Montecassino SpA	Genoa	1961	120,000	1.11
Saá»ne-Poulet S.A	Merseille	1972	175,000	1.07
Vaysol S.A	Antwerp	1976	220,000	1.06
Next 10 largest plants			450,000	1.19

Exhibit 2
VICTORIA CHEMICALS (A)
Frank Greystock's DCF Analysis of Merseyside Project
(financial values in millions of British pounds)

Assumptions
Annual Output (metric tons)				250,000		Discount rate				10.0%
Output Gain/Original Output				7.0%		Tax Rate				30%
Price/ton (pounds sterling)				675		Investment Outlay (mill.)				12.0
Inflation Rate (prices and costs)				0.0%		Depreciable Life (years)				15
Gross Margin (ex. Deprec.)				12.50%		Salvage Value				0
Old Gross Margin				11.5%		WIP Inventory/Cost of Goods				3.0%
Energy Savings/Sales			Yr. 1-5	1.25%		Months Downtime, Construction				1.5
			Yr. 6-10	0.75%		Preliminary Engineering Costs				0.5
			Yr. 11-15	0.0%		Overhead/Investment				3.5%

				1	2	3	4	5	6	7	8	9	10	11	12	13	14	15
		Year	Now	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022
1. Estimate of Incremental Gross Profit
	New Output (tons)			267,500	267,500	267,500	267,500	267,500	267,500	267,500	267,500	267,500	267,500	267,500	267,500	267,500	267,500	267,500
	Lost Output--Construction			(33,438)
	New Sales (Millions)			157.99	180.56	180.56	180.56	180.56	180.56	180.56	180.56	180.56	180.56	180.56	180.56	180.56	180.56	180.56
	New Gross Margin			13.8%	13.8%	13.8%	13.8%	13.8%	13.3%	13.3%	13.3%	13.3%	13.3%	12.5%	12.5%	12.5%	12.5%	12.5%
	New Gross Profit			21.72	24.83	24.83	24.83	24.83	23.92	23.92	23.92	23.92	23.92	22.57	22.57	22.57	22.57	22.57

	Old Output			250,000	250,000	250,000	250,000	250,000	250,000	250,000	250,000	250,000	250,000	250,000	250,000	250,000	250,000	250,000
	Old Sales			168.75	168.75	168.75	168.75	168.75	168.75	168.75	168.75	168.75	168.75	168.75	168.75	168.75	168.75	168.75
	Old Gross Profit			19.41	19.41	19.41	19.41	19.41	19.41	19.41	19.41	19.41	19.41	19.41	19.41	19.41	19.41	19.41
	Incremental Gross Profit			2.32	5.42	5.42	5.42	5.42	4.52	4.52	4.52	4.52	4.52	3.16	3.16	3.16	3.16	3.16

2. Estimate of Incremental WIP inventory
	New WIP inventory			4.09	4.67	4.67	4.67	4.67	4.70	4.70	4.70	4.70	4.70	4.74	4.74	4.74	4.74	4.74
	Old WIP inventory			4.48	4.48	4.48	4.48	4.48	4.48	4.48	4.48	4.48	4.48	4.48	4.48	4.48	4.48	4.48
	Incremental WIP inventory			-0.39	0.19	0.19	0.19	0.19	0.22	0.22	0.22	0.22	0.22	0.26	0.26	0.26	0.26	0.26
3. Estimate of Incremental Depreciation
	New Depreciation			1.60	1.39	1.20	1.04	0.90	0.78	0.68	0.59	0.55	0.55	0.55	0.55	0.55	0.55	0.55
4. Overhead				0.42	0.42	0.42	0.42	0.42	0.42	0.42	0.42	0.42	0.42	0.42	0.42	0.42	0.42	0.42
5. Prelim. Engineering Costs				0.50
Pretax Incremental Profit				-0.20	3.61	3.80	3.96	4.10	3.32	3.42	3.51	3.55	3.55	2.20	2.20	2.20	2.20	2.20
6. Cash Flow Adjustments
Less Capital Expenditures			-12.00
Add back Depreciation				1.60	1.39	1.20	1.04	0.90	0.78	0.68	0.59	0.55	0.55	0.55	0.55	0.55	0.55	0.55
Less Added WIP inventory				0.39	-0.58	0.00	0.00	0.00	-0.03	0.00	0.00	0.00	0.00	-0.04	0.00	0.00	0.00	0.26
7. Free Cash Flow			-12.00	1.85	3.33	3.86	3.81	3.77	3.08	3.07	3.05	3.03	3.03	2.04	2.08	2.08	2.08	2.34

NPV =			10.57
IRR =			24.3%

ADMS 4255 Study Guide - Final Guide: Regis Mckenna, Decision Support System, Customer Experience

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